By  on August 10, 2007

NEW YORK — Sally Beauty Holdings Inc. saw third-quarter profits slide 7.6 percent, and below consensus estimates, on higher interest expense to $13.4 million, or 7 cents a diluted share.

Earnings in the same period a year ago, when Sally was part of Alberto-Culver Co., were $14.6 million.

Wall Street expected the company to report third-quarter earnings of 9 cents a diluted share on revenue of $633.5 million.

Sales grew 5.9 percent to $634.9 million from $599.5 million in the year-ago period. Sales of the firm's Sally Beauty Supply business accounted for 63.5 percent of revenues, while the company's Beauty Systems Group distribution business generated 36.5 percent of sales.

Third-quarter comparable-store sales of the 2,676-store Sally Beauty Supply chain rose 3.4 percent, while comp-store sales at BSG, which comprises 860 company and franchised stores, increased by 9.2 percent.

Gary Winterhalter, president and chief executive officer of Sally Beauty Holdings, noted during a conference call with analysts that Sally Beauty Holdings continues "to add new [hair care] brands" since L'Oréal announced its acquisition of distributor Maly's West Inc. last month and Beauty Alliance in the spring. The brands, he noted, have joined BSG because they do not want to be distributed by competitor L'Oréal. These brands include Paul Mitchell in Southern California, and — in certain states and BSG markets — Goldwell, KMS, Farouk, Tigi, Nioxin, Rusk and Kenra.

Still, this year is expected to be a "challenging" one for BSG as it "rebuilds" its margins and distribution base, said chief financial officer David Rea. Last year, distribution of L'Oréal brands by BSG was ended and BSG lost $30 million in L'Oréal-related sales. This loss has been partially offset, however, by $14 million in revenues of non-L'Oréal brands and the 2006 acquisition by BSG of U.K. distributor Salon Success, which has added about $5 million.

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